The RBAP is celebrating the 70th anniversary of rural banking through its Annual National Convention and General Membership Meeting on June 7 and 8.
In the Philippines, an archipelagic nation of 7,641 islands, where a fragmented geography and threats of natural phenomena pose constant challenges, universal financial inclusion remains a daunting prospect, with many areas still underbanked or underserved by banks.
This is where rural banks come in and take on an even more heightened importance. These institutions play a crucial role in driving economic growth, financial inclusion, and community development even in the farthest reaches of the country.
They provide accessible financial services to individuals, small farmers, agricultural cooperatives, and microenterprises in rural and remote communities. By offering savings accounts, loans, and other financial products, these banks ensure that people in said areas have access to basic banking services, empowering them to save, invest, and participate in the formal financial system.
In 1955, the Rural Bankers Association of the Philippines (RBAP) was founded to help safeguard the welfare and common interests of rural bankers so they can continue contributing to nation-building. A non-incorporated and voluntary association of rural financial institutions, it was first led by Alfredo Montelibano Sr. of the Rural Bank of Bacolod City, with representatives from eighteen rural banks.
This 2023, the RBAP is celebrating the 70th anniversary of rural banking through its Annual National Convention and General Membership Meeting on June 7 and 8. With the theme “Rural Banks: 70 Years of Touching Lives and Inclusive Development,” the event is envisioned to serve as a platform for sharing rural banks’ positive impact, clients’ success stories, and RBAP’s continued relevance in touching the lives of local communities throughout seven decades of servicing the farmers, fisherfolks, microentrepreneurs, and MSMEs.
Conduits of government loan programs, distribution channels for financial aid
For the past several decades, RBAP has remained steadfast in its commitment to supporting the agricultural sector, empowering microentrepreneurs, and fostering inclusive development in local communities.
“Rural banks comprise less than 2% of the Philippine financial system in terms of total resources, and yet it has an impact that is out of proportion to its small size,” said RBAP president Atty. Mary Ann E.M. Tupasi-Saddul in an interview with The Philippine STAR. “Let me also clarify that the Rural Bankers Association of the Philippines is composed not only of rural banks but cooperative banks as well. Rural and cooperative banks’ financial performance and other key metrics are also measured together by the banking regulator, Bangko Sentral ng Pilipinas (BSP). Thus, when I refer to rural banks, I am referring to rural and cooperative banks,” Saddul explained.
“We are proud to say that rural banks form the largest portion, in terms of credit deployed, of financial institutions chosen by government to roll out its agricultural credit program under the Department of Agriculture’s (DA) Agricultural Credit and Policy Council,” she added.
Aside from acting as conduits of government loan programs, rural banks are also distribution channels for the government’s 4Ps financial aid/conditional cash transfer program for the country’s poorest of the poor.
For the past several decades, RBAP has remained steadfast in its commitment to supporting the agricultural sector, empowering microentrepreneurs, and fostering inclusive development in local communities.
“Rural banks comprise less than 2% of the Philippine financial system in terms of total resources, and yet it has an impact that is out of proportion to its small size,” said RBAP president Atty. Mary Ann E.M. Tupasi-Saddul in an interview with The Philippine STAR. “Let me also clarify that the Rural Bankers Association of the Philippines is composed not only of rural banks but cooperative banks as well. Rural and cooperative banks’ financial performance and other key metrics are also measured together by the banking regulator, Bangko Sentral ng Pilipinas (BSP). Thus, when I refer to rural banks, I am referring to rural and cooperative banks,” Saddul explained.
“We are proud to say that rural banks form the largest portion, in terms of credit deployed, of financial institutions chosen by government to roll out its agricultural credit program under the Department of Agriculture’s (DA) Agricultural Credit and Policy Council,” she added.
Aside from acting as conduits of government loan programs, rural banks are also distribution channels for the government’s 4Ps financial aid/conditional cash transfer program for the country’s poorest of the poor.
In terms of inclusive development, Saddul further described the role of rural banks as “last mile delivery channels” for financial services. “[They] are present in the lower income municipalities of the country in much greater numbers than their bigger counterparts (universal, commercial, and thrift banks).”
Out of the 1,249 bank offices (as of 31 December 2022) in the country’s 3rd, 4th, 5th, and 6th class municipalities, 900 offices or 72% are rural or cooperative bank branches. Moreover, in the country’s 303 municipalities that only have a single banking presence, 236 or 78% of this is accounted for by a rural or cooperative bank office.
Promoting financial literacy, independence
Rural banks also provide financial counseling to their clients, whether depositors or borrowers, with the end in view of encouraging financially responsible behavior among depositors, and helping avoid over-indebtedness among borrowers.
“Inclusive development can be achieved by several approaches that are synced together under a national strategy. We believe that financial education, both for personal finance and business finance, is the first step,” Saddul, who represents the Rural Bank of Solano, Inc., emphasized.
“Rural banks’ role in inclusive development would be the same role they have been playing for the last 70 years—to go where others would not, or dare not, to lend to sectors that others deem unbankable or too risky, to be the literal first step on a person’s or a family’s journey to financial literacy and independence.”
Facing current challenges
Over its seven-decade existence, the rural banking industry has weathered its fair share of adversities. Currently, what RBAP considers a critical issue is the ability of rural banks to cope with the new minimum capital requirements issued by the BSP in the third quarter of 2022.
“This is a concern that will occupy much of our attention for at least the years 2023-2025, when the BSP’s Rural Bank Strengthening Program is in effect,” said Saddul. Other key issues are direct offshoots of the new normal, such as acquiring or enhancing digital capabilities to keep up with client expectations; and retaining talent in the face of increasingly attractive work-from-home offers mostly by, but not limited to, foreign employers in the gig economy.
RBAP has adopted strategies to address all three concerns.
“For the principal issue of raising capital, RBAP initiated its Angel Network program which aims to bring together parties interested in investing in rural banks, with rural banks needing such investment. The program also includes capacity building exercises focused on regulatory compliance and good corporate governance,” she shared.
On digitalization, RBAP has paired up with multilateral development organizations to source funds on a counterpart basis to meet at least part of the cost of a rural bank’s journey toward going digital. As regards talent retention, the association, through its research arm the Rural Bankers Research and Development Foundation, has instituted a multi-disciplinary approach that includes a survey of industry compensation packages with the goal of helping rural bankers design more responsive benefits structure, and education and awareness programs designed to give staff pride and sense of ownership in a rural banks’ role in countryside development.
Banking on decades of mutual trust
Saddul takes pride in how rural banks have offered highly personalized services “over several generations.”
She said that aside from their physical presence in areas where “the big boys do not go, and maybe where the digital boys do not target,” their advantage is decades of mutual trust and support forged with their clients.
“Their grandparents and parents have banked with us, and so they bank with us. They have banked with us when they were ambulant vendors, so their descendants, who are now pillars of the community as outstanding businessmen with multi-million-peso ventures, still bank with us. We think this capital of goodwill and trust gives us an edge that it would be a crime to waste. This is what sustains us in a post-pandemic world,” she explained with a wistful smile.
Keeping up with banking trends
We live in fast-paced times, especially in banking and finance, where competition can be cutthroat, and evolution can be at breakneck speed. Saddul shared that the trends they have noted are “double-edged swords” that present both threats and opportunities to their markets.
“These are the presence of digital banks that draw in deposits through interest rates that are significantly higher versus traditional bricks and mortar banks, and the increasing presence of unregulated, non-bank actors in the financial space that provide loans, payment, and other financial services.”
She admitted that both entities threaten to take away a “significant chunk” of their business. However, these trends also compel them to make further improvements in their organizations in terms of easier access, more agile decision-making, and faster delivery of services. “These improvements in turn can only enhance the customer experience, and in turn generate a flow back of business that will ultimately strengthen rural banks,” she added.
Saddul mentioned that they try their best to learn from their digital savvy competitors. They try to have an understanding, for instance, of the value of AI in decision-making, as well as the advantages of automating processes.
They have also learned to draw lessons from the vulnerabilities of their competition.
“We have had word from customers that higher interest rates offered by digital banks may actually be having the reverse effect on some customers, as many Filipinos still tend to bank on the conservative side.”
As for the unregulated actors, she said that the rural banking industry’s edge remains to be public knowledge and confidence that rural banks are accountable as regulated entities.
And with the digitization of most banking services, Saddul recognizes how most Pinoys are now joining the digital banking bandwagon. “We should give our kababayan more credit. They are ready to make the jump to digital, we just must provide them with a solution that is intuitive and easy to understand.”
She explained how their clients, same as bank clients everywhere, place a “high priority on convenience” and that the challenge is getting a digital solutions provider with a product that makes convenience more convenient, rather than adding to a client the burden of learning or re-learning digital banking.
A “Cautiously Optimistic” outlook
“It may be safe to say that the industry has adequately rebounded from the pandemic. This is clearly borne out by loan and deposit growth during 2022, which exceeded performance during the last pre-pandemic year of 2019,” Saddul shared. Despite this, she admitted that, regarding the industry’s outlook, it might be an “exaggeration” to say the climate is positive as there are challenges that remain to be addressed.
She clarified this by saying: “Let us rather say that the industry has a cautiously optimistic outlook on 2023 and 2024.”
Despite current and would-be challenges, Saddul is confident that RBAP will remain relevant within its key markets, as it has done so for the last 70 years.
She cited how they were able to withstand the financial crises of the 1980s, 1997, and 2008, the loss of confidence in small banks during the Legacy Banks and Banco Filipino closures in 2008 and 2009, and most recently, the pandemic.
“We have shown our ability to adapt, survive, even to thrive,” she enthused.
“We are confident, not only in our ability to face the evolving crises of the coming years, but also that we have been able to prepare our successors, to face the challenges that will doubtless face their generation, whatever those challenges may be.”